Pay attention to duration risk in market fallout from Russia's invasion of Ukraine


It’s been a wild ride for the commodity markets in light of what’s happening with Russia’s invasion of Ukraine.

Chuck Penner of Leftfield Commodities Research joined RealAg Radio on Wednesday to help interpret a bit of what is happening, in what is a very fluid situation. As Penner explains, it’s tough to even talk about the markets when so much hurt is going on in the world, but the reality is, the markets are moving, and we can’t really ignore that either.

“The market loves uncertainty. Because there’s so much uncertainty, and because it’s getting so much attention, you’re having this flow of money run into commodities, and not just crop commodities, but we also see that in the energy markets, and so on. So there’s some fundamental reasons behind some of it,” Penner explains. “But there’s also a certain follow the crowd, or rather, get ahead of the crowd mentality pushing into that whole space. So that’s what we’re seeing govern those markets.”

The main reason the grain market is continuing to build, says Penner, is the concerns about actually getting any crop into the ground in Ukraine. That, and the issue of even getting wheat out of Ukraine or Russia, is compounding the issue.

“For things like wheat, Ukrainian shipping is typically very front loaded in marketing year. So 80 per cent, for a lot of crops, moves already in the first six months of the year. So there isn’t a whole lot left to move, but it is enough of a disruption to cause those worries,” he explains. “Russian shipping is not quite as front loaded. So there is more that needs to be moved yet.”

The other question about planting isn’t just whether or not the Ukranians will have time to plant, but also, will they have the seed? Will they have the inputs needed? This could all impact production, says Penner.

The question locally in Canada, in the marketing world, what does this mean for the Canadian farmer? Of course, there is a duration risk, but where will the effects be felt? As Penner explains, the impacts will mostly be on new crop.

“In a normal year, we would still have a fair amount of crop left to sell, to move out. We have no canola left, there might be some minor market that could capitalize on it. Europe might come back and buy a little flax — the little bit we have left. We have no barley left to sell, maybe more eastern Canadian corn. Those kind of sales, or soybeans might get picked up, but it is really more of a new crop situation,” he says, which leads us back to speculation about what the future might hold, and which crops could be hurt or damaged the most.

“We’re hoping to produce a crop this spring and have something to sell, so it has some positive implications. My advice is that, farmers were already reluctant to be pricing new crop for the most part, and I would say that from the marketing picture, maybe they should be even a little more laid back with their new crop pricing and see where these markets go. What you need to consider though is the duration risk of the conflict, because there’s some fundamentals at play here. But there is some speculation that this could go for the next three months. The risk needs to be considered,” he advises.

Check out the full conversation between Chuck Penner and RealAgriculture’s Shaun Haney, below:

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